How Gates got game

Microsoft built the most popular gaming site on the Web despite itself.

"DID YOU THINK this was a game?!" Robert "Rasta" Villa screamed. He was doing the play-by-play from a crowded press box at the Professional Gamers League national computer game championship, held at Seattle's GameWorks last summer. Villa was calling a match featuring the champion of PC shoot-'em-ups, Dennis Fong—a.k.a. "Thresh"—who was on his way to another victory in Quake. Tournament sponsors, meanwhile, were whispering that PC games were about to become the nation's next spectator sport. Fong, they said, is computer gaming's answer to Michael Jordan.

Microsoft's Ed Fries: selling games to a skeptical boss.

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The 21-year-old favorite eventually took home $7,500 for the GameWorks championship, and says that he pulls down six figures per year playing Quake. On top of that, Fong won a 328 GTS Ferrari last year, worth more than $100,000, and Microsoft pays him an undisclosed sponsorship fee to wear a company baseball hat during tournaments.

If none of this impresses you, consider these staggering numbers from the computer gaming industry. Just about half of all software sold to home consumers—more than $1.2 billion worth annually—is some kind of game. Last year's best-selling game, the Legend of Zelda: Ocarina of Time, grossed $150 million during the six-week Christmas season—24 percent more than the box-office gross of the year's most popular Christmas movie, Disney's A Bug's Life. Guess what's the most popular activity on the Web? Games. Now, guess who's wising up to it all.

LAST MONTH, BILL GATES briefed reporters on Microsoft's latest Internet strategy. According to him, 163 million people now use the Internet, with fully 30 percent of them playing games on the Web—more than any other online activity. (Gates, who has always trumpeted the computer and the Internet as productivity tools, looked bemused when he recited this statistic.) Roughly 25 percent, he continued, use the Web to get news, and only 10 percent shop online.

While Microsoft is never afraid to go after new markets—and the software giant has made significant acquisitions in the games category recently—gaming clearly runs counter to Gates' belief that software and the Web are ultimately utilitarian. "Just because people are using the Internet doesn't mean that they've really adopted it as a very broad tool," he said last month. "And we see that in the statistics here."

Since the early 1990s, Microsoft has made several forays into interactive media—all with considerable fanfare and cyberhype that eventually gave way to embarrassing and disastrous results. Its early-1990s multimedia publishing ventures into interactive television and CD-ROMs were all but phased out entirely in 1996. Two years ago, Gates declared his intention to spend $400 million on a new Web-based content strategy modeled after high-concept television shows. Superstar editor Michael Kinsley was hired to run the online magazine Slate as the premiere "show" on the new Microsoft Network, and he soon found himself on the cover of Newsweek as the Meriwether Lewis of cyberspace. Since that splashy beginning—dubbed by Gates as the dawning of a "new mass medium"—dozens of MSN shows have been launched and canceled. Hundreds of "content providers" were laid off, and the top three Microsoft executives in charge of MSN have left the company. A trimmed-down Slate is the sole remaining MSN "program," and it now claims about 500,000 regular readers.

Microsoft's Gaming Zone, by comparison, has thrived in the face of "support" from Microsoft management that could generously be described as grudging. In 1996, Microsoft acquired Electric Gravity, a small Berkeley-based gaming company that had launched the Gaming Zone a year earlier. Microsoft built out the site, added more games, and slowly integrated it with other Microsoft online properties. The MSN Gaming Zone now boasts more than 5 million registered users and has become the most popular gaming site on the Web. Some 250,000 unique users come to Zone.com every day—more than the number who visit all three Disneyland theme parks combined.

So do games get any respect in Redmond now that they're the most popular category on MSN? "We're still working on that," says Ed Fries (pronounced Frees), general manager of Microsoft's gaming group. When Microsoft relaunched MSN last year as a free portal for such Web services as news, weather, e-mail, and shopping, the company didn't even include games as an option on the list of linked categories for users to choose from. "We had a lot of fights with them about that," explains Fries, who had to lobby Laura Jennings, vice president of Interactive Media at the time, for a spot on Microsoft's portal. "The problem was, they were all about service and what you can do online, and we're—we're kind of about doing nothing," Fries says with a laugh.

The "trial by fire" has long been a prominent feature of the Microsoft culture: Product teams and other groups within the company have to compete with one another for hard-to-earn management respect by succeeding in some way before Microsoft will provide them with exposure and resources. "Basically, what happened was that the MSN guys were off doing their thing with the shows," Fries says, "and I think everyone believed their thing was going to be super-important online, and over time some of those ideas worked out quite well, and some things didn't work out, like the shows. To me, some of the shows were too much about reading . . . they took a passive television approach to essentially an active interactive medium."

Fries argues that games drive interactive media and technology, including even hardware, because they take full advantage of the Net by providing forums for people to interact with other real people across the Web in a social and competitive forum. But game enthusiast that he is, even Fries will allow that no one has figured the Web out. In the final analysis, the Internet is worthless to Microsoft until the company can make a hefty profit off of it, and the Gaming Zone, despite its popularity, is still a money loser, its advertising-based earnings model as yet not covering its costs. This makes games easy to dismiss as another flash-in-the-pan, profitless answer to the interactive media puzzle. No one considers Rasta, "Thresh," and gaming's post-pubescent, almost entirely male following to be the building blocks of a new economy. Yet Fries points out that, of the dozens of games offered on the zone, the most popular isn't Age of Empires, or Beast Wars Transformers, or CyberStrike 2, or any of the action-packed shoot-'em-ups. By far the most popular game on the Internet's most popular gaming site is one with a far broader demographic: the card game Spades.